Here's Who's Going To Get Taken To The Cleaners Over The Gulf Oil Spill

The massive oil spill in the Gulf of Mexico's Macondo field could
not have come at a worse time. Just as the Obama administration
was finally opening up new offshore tracts for lease, this had to
happen. All new licenses for deepwater wells have been frozen,
pending an investigation into the causes of the current blow
out. The 5,000 barrels a day that are leaking is, so far,
just a tiny fraction of the 75,000 barrels that washed ashore in
Santa Barbara in 1969, which I personally helped clean up. But,
its magnitude will surpass the 1989 Exxon Valdez disaster in a
matter of days.

I haven't heard Sarah Palin say "drill baby, drill" since last
week, possibly because four red states are about to see their
tourism industries destroyed by fouled beaches just as summer
vacations begin (see map below). Ooops! Maybe all those tourists
are now headed for California? There goes my parking spot at the
beach. Today's cleanup estimate is at $4.6 billion.

The $1.6 billion that is in the Oil Spill Liability Trust Fund,
which is funded by an eight cent per barrel tax on every barrel
produced or imported into the US, will get cleaned out. No doubt
British Petroleum (BP), the lease holder, and Transocean (RIG),
the subcontractor, will get absolutely taken to the cleaners over
this. The insurers for the rig, probably Lloyds of London, will
take a multibillion dollar hit on claims. Shipping rates for
Suezmax crude carriers are already climbing, as the prospects of
greater offshore supplies recede into the future. Some one third
of total US oil production is offshore.

It is clear that either a blowout preventer valve was missing
from this site, an insane cost cutting risk at this depth, or
malfunctioned. It has long been a dirty little secret that
offshore drillers routinely ignore regulations that are strictly
enforced by the states on the US mainland.

Anyone who has worked closely with these wells, as I have, knows
that they can blow up at any time, and that you can't spend
enough on safety. Too bad for RIG, which is a first rate company,
with about half of its offshore rigs on long term leases to
Brazilian oil company Petrobras (PBR). As for BP, may they roast
in Hell. Not only is their safety record deplorable, I am still
smarting from the $75,000 I lost as my personal underwriting
share when Morgan Stanley took them public in 1987.